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Running a business

Inventory Planning Guide

By QuickBooks Australia

Published on April 4, 2023

headline

Retail business owners must take several factors into account in the day-to-day running of a successful business. However, getting products to customers on time should be high on the list of priorities to get right.

Keeping track of your product inventory enables you to satisfy consumer demand while continuing to turn a profit, while avoiding potential hiccups along the way. Yet, controlling your inventory can be challenging, especially as your company expands and client demand changes.

So, how do you ensure that you don't overstock and still have enough products on hand to fulfil orders?

The answer lies in effective inventory planning.

Why is Inventory Planning and Management Crucial?

Planning your inventory well will guarantee you have enough products on hand to satisfy client demand, avoiding potential issues like backorders. When done correctly, it can also help in reducing costs, such as additional storage costs when stocking too many products.

Improper inventory planning can result in a loss for the company if you overstock with products you can't sell.

4 Benefits of a Successful Inventory Plan

Every business has a distinct way of implementing planning systems, but inventory management runs on a core principle regardless of industry. You must have enough stock to fulfil orders and know exactly when to reorder stock for maximum efficiency.

Doing this well results in the following benefits:

1. Preventing Dead Stock

Dead stock is merchandise that is no longer relevant or in style, regardless of the season. Planning your inventory well will help you avoid the expensive issue of having a lot of stock you can’t sell.

2. Prevent Wasting Stock

Wasting stock relates to perishable products. For example, buying too many cosmetics or foods that then go out of date can be a costly mistake.

3. Make Warehousing More Efficient

The amount of stock you're storing can have an impact on the cost of warehouse storage. Your warehouse charges will go up if you store too many goods at once and can't sell it. Keeping track of your inventory carefully lowers these overhead expenses.

4. Improve cash flow

Paying for stock takes cash out of your business. Granted, you might get the cash back when you make sales, but while the products are still classified as stock, it’s valuable cash that you can’t use elsewhere in your business.

Improving your inventory planning can help you improve your cash flow management so you can use the money at your disposal more wisely.

Challenges to Inventory Planning

There are several potential inventory planning challenges you may need to overcome as a retailer. For example, many businesses have inefficient inventory tracking systems when starting out, using simple, manual spreadsheets to track stock. These kinds of systems are ripe for mismanagement and don't allow for scalability.

As your business grows, you also need an efficient system for understanding exactly where all your stock is and an accurate number for product quantities. Adopting an Internet of Things (IoT) inventory will automatically allow you to keep track of stock.

Poor stock control – simply having too much or not enough stock – can have disastrous consequences for your business as you are unable to fulfil orders or you are paying too much for storage of stock that may not get sold.

In addition, if your business relies on a complex supply chain involving many other manufacturers or raw materials suppliers, it can be challenging to manage those logistical issues and ensure you have the right stock at the right time.

Another challenge to overcome for inventory managers are fluctuations in demand. Your business needs to be agile enough to cope with surges or drops in demand for products. Using sophisticated reporting and forecasting technology can help you better understand some of the more predictable fluctuations.

For instance, many ecommerce business owners will see a boost in sales around the festive period. Using automated reporting software can help you plan according to ensure you have the right amount of stock.

6 Inventory Planning Best Practices for the Holidays

To ensure your business is well-equipped to deal with the holiday season, ensure you adhere to these inventory planning best practices:

Improve forecasting practices
Perform regular inventory audits
Invest in inventory planning visibility
Expand network of shippers and suppliers
Account for a reasonable amount of safety stock
Create a contingency plan

Improving forecasting practices means taking into account both historical data while also understanding current trends to ensure you have the best preparation possible.

Your stock levels will reflect actual demand if you invest in inventory visibility that improves the accuracy of demand planning. It also tells you what inventory needs to be replenished and when, so you can order again in time to prevent stockouts during the holidays. Having those real-time insights into your stock levels is vital over a busy holiday season where people may shop across multiple channels.

Part of your inventory visibility investments should make performing audits of your inventory much easier. As a key part of any auditing, ensure you answer these questions:

Which items should you stock up on?
Do you have old inventory taking up space that you want to clear out (via discounts or sales)?
Which items should you avoid reordering this year based on slow-moving sales from a previous year?

You need to protect your business against fulfilment challenges in the e-commerce industry, something the pandemic brought painfully to light. One way to protect your business against this is to broaden your partnerships with suppliers and shippers to buffer against any issues one supplier may encounter.

Running out of stock during the holiday season is a fast track to losing customer loyalty if you can’t fulfil orders. Therefore, using your forecasting and auditing process to ensure you have (the right amount of) safety stock in case of higher than expected demand is a good idea.

Whatever happens, you need contingency plans for the holiday season and beyond. If you encounter stockouts, you need to have the software to effectively manage backorders. If you overstock, be prepared with marketing campaigns or promotional offers to help shift those products.

Inventory Template to help with your planning

If you run a small business, you may be able to meet your inventory needs with QuickBooks’ Excel Inventory Template. By using this template, you can track products and raw materials by quantity and unit price.

This inventory template notes items in stock by name, description, and unit price. In addition, it includes useful formulas to help you keep track of inventory value per item; stock reorder level, quantity to reorder, and reorder time. It also keeps track of whether the item is discontinued so that you stay on top of your ordering.

This template is perfect for repair shops, offices, artists’ studios, and manufacturing plants. It is sure to keep your business running smoothly.

With our free template, tracking your inventory in Excel becomes a simple and easy process. All you need to do is input the details of your stock, and the template will do the rest.

Inventory Management With QuickBooks

QuickBooks Inventory Management software can help you navigate all the potential obstacles of the holiday season. With an intuitive interface, you can get a holistic, real-time view of your inventory, letting you sell, ship, manage and grow, all in one place.

QuickBooks lets you add your inventory products into various categories. As stock comes in and out, the inventory management software auto-updates your inventory. This makes it easy to see what’s selling and what to reorder. You can view various reports to give you sophisticated insights that help you better prepare for the future. All of these features and more enable you to prepare for the holidays season with confidence.

Try QuickBooks today with a free 30 Day trial.

FAQs

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